The Impact of Dividend Policy on Share Price Volatility: Evidence from Banking Stocks in Colombo Stock Exchange

This paper examines the dividend policy related literature in order to find evidence by looking at the impact of dividend policy on share price volatility through an analysis of licensed commercial banks listed in Colombo Stock Exchange in Sri Lanka. The panel data least squares method was adopted with the fixed effect model. The impact of dividend yield on share price volatility of licensed commercial banks were found to be insignificant at a 5% significant level with positive correlation, whereas dividend payout had a significant negative correlation as expected with share price volatility, which was substantiated by the empirical evidence from different capital markets as well as dividend related theories. These results suggest that dividend policy has an impact on share price volatility in the Colombo Stock Exchange with regard to banking sector stocks.